You Can File for Taxpayer Relief if the Debt Occurred More Than 10 Years Ago - With One Caveat

If you have received notice regarding a re-assessment of your tax filings and have been notified of a tax debt owing, this will often occur many years after the tax year in question. If you file your tax returns late, you will have your returns assessed in a batch and penalties and interest will be calculated retro-actively. A common complaint for taxpayers in this situation is that a reassessment that goes back several years often results in high interest and penalties. Once this occurs you have one of two choices: object to some or all of the penalties and interest assessed or apply for Taxpayer Relief.

If an objection is filed it can take years, depending on the grounds for your objection, before a decision is made, and if your objection is rejected, your next option is an application for Taxpayer Relief.

Where taxpayer relief is concerned, CRA has said that you cannot file for relief of penalties or interest on tax years over 10 years old. The challenge is that many taxpayers, especially those who have gone through the process of filing an objection - have their Taxpayer Relief applications rejected for this reason. This is unfair because it is often the slow process of the CRA that causes delays in processing that result in additional interest and result in the time being stretched out.

Prior to 2011, the Canada Revenue Agency (CRA) staunchly refused to grant relief from penalties and interest on a debt that occurred more than ten years previous, stating that the Minister had no power to grant taxpayer relief after the ten year period had passed. However, in 2011, the Federal Court of Appeal heard the case of Bozzer v. The Queen, and the landmark decision changed things significantly.

Bozzer v. The Queen: In December 2005, Mr. Bozzer applied for relief of interest on a tax debt assessed for his 1989 and 1990 taxation years. This request was denied because CRA policy excludes debts over 10 years of age. Following this rejection, Mr. Bozzer made his way up the court ladder, ending up in the Federal Court of Appeal. It was determined that the Minister, based upon the legislation which sets out to “administer the income tax system fairly and reasonably by helping taxpayers to resolve issues,” should be able to use his/her discretion with regard to all cases.

According to CRA’s website: “The FCA [Federal Court of Appeal] found that the Minister has the discretion to cancel interest that accrued during the 10 calendar years preceding the year in which the request for relief is made, regardless of the tax year in which the tax debt arose. For example, a request made in December 2011 for the 1998 tax year, the Minister may cancel any interest that accrued during the 2001 to 2010 calendar years. Prior to this decision, the CRA's position was that the Minister could not cancel any interest where the request was made more than 10 calendar years after the end of the tax year in which the tax debt arose.” 

What does this mean? For taxpayers, this decision means that it is up to the discretion of the Minister whether relief can be granted, regardless of whether the 10 year period has passed – rather than just receiving an outright no.

Sounds great right? Well in a perfect world CRA would no longer refuse to consider a relief application that involved interest and penalties over the 10 years preceding the application. Unfortunately we do not live in a perfect world and so taxpayers continue to have their Taxpayer Relief applications rejected, citing the 10 year rule even with the Bozzer ruling on the books.

The challenge with the Taxpayer Relief process is that:

1.      You may make a first application

2.      If rejected, you may provide more information and ask for another review

3.      If rejected you can ask for a judicial review = tax court

If you have had a first application rejected because of the 10 year rule, then it is important that you have your second review prepared professionally and cite the correct case law in order to optimize your chances of being successful. 

For more about Bozzer v. The Queen, the impacts to Taxpayer Relief, or to file for relief, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us at www.taxsolutionscanada.com.